Will Sick Ordinances Drain your Bottom Line?

The pile of compliance burdens weighing on a staffing company is seemingly endless. ACA. FMLA. FLSA. Ban the Box. Onboarding. I-9. NLRB. The list goes on and on, and it’s growing. New sick ordinance legislation is sweeping the country and eating away at staffing companies’ gross profit.

Coming to a Town Near You

Regulated sick ordinances, or SPTO (Statutory Paid Time Off), are local, county or state-wide requirements to accrue paid sick leave for employees.
The first mandated sick ordinance started ten years ago in San Francisco and has grown across major sections of the country. If you aren’t already affected by regulated sick ordinances, you will be soon. Figure 1 shows entire states that have regulated sick ordinances in red, and stars for local or county-wide sick ordinances.


[Fig. 1]

Think you’re safe if you’re in a state shaded in black? The rapid rate at which municipalities are adopting sick ordinances means they are likely coming to a town near you soon. Also keep in mind that sick ordinances are effective based on the location of your employees’ job site, not where you are located. If you operate in multiple states—or are hoping to expand into other areas—sick ordinances will likely come into play.

The Drain on Your Bottom line

As if the administrative tracking and reporting component of these regulations aren’t enough of a burden, many staffing companies are inadvertently paying a financial price as well. While SPTO is a statutory cost like any other – and thus should be fully eligible to be charged back to the client, it’s not always as easy as it sounds…

Unfortunately, this comes at a significant price. The chart below (figure 2) shows the dramatic loss of gross profit when an employee takes just one statutory sick day that is not charged back to the client.

The top row displays a normal work week—with the staffing company realizing a 26% gross profit. The bottom row illustrates what happens when an SPTO day is taken and paid out, but the client is not charged back for it. GP dips to a dismal 7% for the week.

SPTO Comparison Chart[Fig. 2]

Getting your GP Back

So what options does a staffing company have? The first, most obvious option, is to charge the client for the sick time. Again – it is a statutory cost, like taxes, and is certainly well within your right to pass on to the client. Unfortunately, complications can arise. For instance, what if an employee accrues the SPTO under one client, but uses it while working for another? Which client do you charge? And how? What if the time is accrued under multiple clients?

One solution is to build a tiny percentage for SPTO into your margin calculator. Even a fraction of a percentage could help protect you from paying out SPTO that you can’t recoup. If clients object, be armed with the facts—know the sick ordinances in the client’s area and be prepared to explain the law or regulation that you’re required to comply with. Chances are, the client has wrestled with the same issue for their own permanent employees and understands the challenge.

Knowledge is Power

Of course, you can’t fix this problem if you don’t know if you have it. Follow these steps to mitigate the risk that comes along with mismanaging sick ordinance regulations:

    • Carefully research the sick ordinances in each area that your employees work. There are vast differences in the actual regulations. Many spell out the conditions that SPTO can be used for and if your staff isn’t well versed in the regulations, they could end up approving SPTO that you’re not required to allow.
    • Fully educate your employees on the regulations. SPTO generally does not have to be paid out upon separation. However, many of the locations where SPTO exists DO require that normal PTO be paid out. This nuanced difference has brought about many legal complaints from employees who think they are entitled to collect payment for unused SPTO. Luckily, the law falls on the side of the employer, but not before major legal defense expenses. Prevent litigation before it starts by ensuring that all employees are well informed of their rights– and yours.
    • Separate SPTO and normal PTO on your employees’ pay stubs.
    • Update your employee handbook to clearly spell out that SPTO will not be paid upon separation.

Technology Check-Up

It’s important to make sure that your payroll technology can accurately accrue and account for SPTO, separate from other time off categories. The regulations are very specific about how and when time must be accrued. This can even vary between two municipalities in the same state. Ask your payroll provider if they are equipped to deal with the rapidly growing SPTO regulations. If they aren’t, find a new service FAST. What if your next order is for a worksite in a location with SPTO regulations? You don’t want to turn away business because a vendor can’t help you stay compliant.

Reporting can also keep SPTO from draining your bottom line. Your reporting functionality should allow you to view gross profit by employee. If all reporting metrics are in aggregate, it will be impossible to pinpoint a single employee’s SPTO day that wasn’t billed back to the client. You’ll have a vague idea that there is a drain somewhere, but you won’t know where or why.

Rebecca Sokolowski, VP of Affiliate Services for People 2.0, recently experienced this first-hand. “A client came to us because they couldn’t understand why their GP was lower than expected. They double checked their margin calculators, bill and pay rates, and back-office expenses, but they just couldn’t figure out where the drip was.” Rebecca’s team dug into the numbers and discovered that the staffing company had multiple employees in jurisdictions that required SPTO. Those employees had been accruing and taking their SPTO, the core staff had been properly paying the employees for the SPTO, but no one had ever tied it back to client fees.

Legislated sick ordinances are popping up all over the country. Protect your company and your gross profit by staying informed and keeping both your core staff and your employees informed. Prepare a mechanism to charge your clients for SPTO to protect your bottom line. Though no staffing company would have wished for yet another compliance area to keep track of, luckily this one comes with some techniques for avoiding another drain on your profit.

As a global workforce deployment company, People 2.0 has expertise in all matters of state, local, and federal regulations impacting the staffing industry. Our seamless end-to-end technology and deeply experienced staff of industry thought leaders ensure that our affiliate company owners are kept fully abreast of legislative changes before they occur. People 2.0 affiliate staffing companies have all tracking, reporting, and other administrative complexities handled for them –allowing core staff to remain focused on the revenue generating activities of sales, service, and recruiting. For more information about People 2.0 and our full suite of services for the Human Capital Services industry, click here to request a member of our team reach out to you.